CSO Blog

Amit and his team at CSO Projement pride themselves in providing seamless comprehensive supply chain and production control services. Uniquely formatted to serve as an extension of existing operations of western headquarters, CSO provides the services to manage and execute projects in China on behalf of their clients.

5 Advantages For Your Company With China Direct sourcing

In this post, I will talk about 5 important advantages China direct sourcing can give you.

Before I start let me just say that working with trading companies or importers in your home country has its advantages and for some companies, this is the way to go.

China direct sourcing has 5 advantages that will take your organization to a whole other level and will give you a competitive edge that will make other players in your industry wonder, how did you manage to be so attractive both in price and quality levels.

I write this post assuming you know all about China direct sourcing. If you don’t, I warmly suggest you will take a look at the following before you continue reading:

The key to the advantages is the flexibility and transparency China direct sourcing provides.

It gives you access to multiple suppliers. It allows you to select by yourself which factory will produce each and every one of your products based on the criteria that are most important to you. And lastly, China direct sourcing allows you to plan and supervise the quality management process and gives you a communication channel that tells you in real-time, what is happening in the production line.

So without any further ado, here are the 5 advantages:

#1: Decide which factory is suitable to make your products

When your supplier is a trading company or a local importer in your home country, you are not really given a selection of manufacturers to choose from when you place your orders.

Usually, you will tell your supplier what it is that you want and if their factories can meet your requirements, you will get what you asked for, and if they can’t, you won’t.

Every manufacturer has a different set of strengths and weaknesses. It is possible the specific manufacturer that your supplier is working with, does not have the set of strengths you need, which will require you to compromise. You may have to compromise on delivery time, price, quality, service and yet, you will feel that this is the best you can get… Not necessarily so.

If you will be introduced to a few factories with a different set of strengths, you will find many new possibilities. When you select a factory for your products there are many kinds of considerations you have at the same time.

Some are technical considerations. You may consider who among all the factories you are evaluating has the best technical people and the best machinery.

Some considerations are operational. You may feel that a specific factory is located closer to your other manufacturers and so your quality control inspectors will not have to travel a long way just for one factory or you may feel another factory is able to purchase on a regular basis a stable quality of one of your preferred raw materials.

Other considerations may be commercial. It is possible that some factories give you better prices than others, better payment terms or just don’t give you a hard time when you want to replace defective goods.

If you source your products directly with factories in China, and if you have the right people who introduce you to a selection of factories, you don’t have to place all your orders with only one factory that doesn’t meet all of your technical, operational and commercial needs.

You can choose which products are more suitable for production in a factory that gives you low prices, which products are more sensitive and tougher to make, and place them in a technically stronger factory even though prices are a bit higher, and you may decide you want a third factory to manufacture another product because their supply chain manager can get you raw materials no other factory can get.

All these decisions must be made by you. You are the only one who knows which products you can afford to buy at a higher price, but cannot compromise on their quality and which products are very price sensitive and their end users are not so fussy about minor quality issues.

For this to happen you must work with the factories directly. Because if you don’t, other people are going to make these decisions for you.

#2: Negotiate based on your priorities.

When there is a third party standing between you and the manufacturer of your product, a whole new agenda is added to the decision-making process, and it is not yours. It is the agenda of that third party.

It is difficult enough to find the middle way when two sides negotiate and look for prices, lead times, payment terms, etc. that both parties can accept.

When there is a third agenda introduced into the equation, everything gets more complicated. Many times, middle man (a trading company or an importer) has some degree of control over the communication with the factory. Either because they have a better relationship with the factory or because it is easier for them to communicate with the factory due to language and location issues.

And so, when the middle man is communicating with the factory, it will consider its own agenda, sometimes before your agenda.

I’ll give you an example.

Let’s say a factory decided that they are willing to give you more convenient payment terms because the raw material you need for your products is lying in the factories warehouse for a long time and the factory wants to use it and turn it into cash. However, the middleman is more concerned about the risk that these payment terms, technically, give you the ability to receive the goods and not pay for them.

The middle man does not benefit from using up the material in the factory’s warehouse.

If in this example situation the middleman controls the communication between you and the factory, it is possible the middle man will not even mention to you the factory is willing to offer you improved payment terms.

When you communicate with several factories directly at the same time, you can discuss a whole range of topics and decide which of the factories gives you the best option.

In your negotiations, you can decide that with some of them you are willing to accept a slightly higher unit price as they can provide a high-quality product you can sell at a higher price yourself.

You may decide you are willing to accept a longer delivery lead time because the factory is able to source raw material that takes a long time to purchase.

Communicating directly with the factory you get a better chance A) to know of more options you have and B) Negotiate according to your set of priorities without any third-party agenda interfering with the negotiation.

#3: Agree with the manufacturer how to control quality and cost at the same time.

There are a few conflicts built into your relationship with your supplier. For example, you want to buy at as low unit price as possible, and your supplier wants to sell to you at as high unit price as possible.

But there are many interests you share. For example, both of you want smooth and quality issues free production process.

One of the most common contributing factors to quality issues is communication.
It is the misunderstanding on the factory side how you would like the quality process to be managed and what exactly your requirements are.

When you are dealing with middlemen, they are responsible for all communications. They take your messages and transfer them to the factory, and you rarely have the chance to monitor that line of communication and confirm your messages were transferred to the factory correctly.

When you manage your communication directly with the people in the factory that will inspect the goods themselves, and will monitor the entire quality process from beginning to end, you can reduce misunderstanding to the minimum.

You can bring your own knowledge to the discussion table and confirm yourself that the QA manager of the factory understands all the critical points and has the tools and expertise to make sure your product is manufactured according to your requirements.

#4: Get alerts about issues that happen in the production line in real time.

If you did your homework properly as a part of the China direct sourcing strategy, then you have your own people in China. It could be that you employ them on a full-time basis, or that you hire the services of an outsourcing company. Both ways are good and allow you to work with people whose agenda is as similar as possible to your own agenda.

It could be really frustrating to find out that at one point during the production process a problem occurred and solved. Why could that be frustrating? It could be frustrating if the solution was not good enough and did not solve the problem to your satisfaction, and you find out about it the day your goods are scheduled to be shipped out.

If the people that are responsible for transferring information to you have the same agenda as yours, they will transfer to you clean and clear information in real time.

Sometimes your supplier would prefer to alert you about problems after they are solved. Some suppliers worry that letting you know about problems before they are solved will scare you and lower your confidence that they are able to finish the production on time and according to the quality standards.

However, many times you want to be a part of the think tank that designs solutions for those problems. Many times, solving problems costs money, and reducing this cost means delaying shipment or accepting some changes to the product specifications. Only you know what your customers can accept and what they cannot. If you leave it to your supplier to guess what is acceptable and what is not, you might find out that the suppliers decided to accept the wrong changes.

You want to make sure you have people in China that will not think twice when issues you need to know about arise.

We do business with people, not companies. And we prefer to do business with people we trust.

The more we trust the people we do business with, the easier it is for us to take small risks. Taking those small risks makes doing business easier. If I trust my supplier to buy the right raw material, then I don’t have to go and check the raw material when it arrives in the factory. That saves me time and money.

If you choose the right supplier and build good personal and business relationship with them, with time you will learn to trust each other. Each of you will be willing to relax initial requirements like the number of inspections and even payment terms.

After a few times, you will learn which areas your supplier is willing to relax their requirements and if you do it wisely, with time it will become easier for you to manage the business. You will travel less, spend less resources on controlling schedule and quality and you will see that you will spend less money and less of your personal time monitoring this business.

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